PLR 200042010: Corporation receives relief for an unfiled S election

Plain-English summary

A corporation intended to elect S corporation status from its incorporation date, and its meeting minutes recorded that plan. Its legal counsel did not prepare or file Form 2553. The IRS found reasonable cause for the missed election under § 1362(b)(5). If the corporation filed a completed Form 2553 within 60 days of the ruling, the IRS would treat the election as timely for its first tax year. The letter did not decide whether the corporation otherwise met the requirements to be a small business corporation under § 1361(b).

Ruling snapshot

• Question: Could an S election that was never filed be treated as timely for the corporation's first tax year?
• Outcome: Approved: timely treatment if a completed Form 2553 was filed within 60 days of the ruling.
• Key authorities: IRC §§ 1362(b)(5), 1361(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200042010
Washington, DC 20224
Release Date: 10/20/2000
Index Number: 1362.01-03
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-112506-00
Date:
July 18, 2000

X =

A =

D1 =

D2 =

Year 1 =

Dear
:

This letter responds to a letter dated June 21, 2000, and subsequent correspondence submitted by X’s authorized representative on behalf of X, requesting a ruling under § 1362(b)(5) of the Internal Revenue Code.

The information submitted states that X was incorporated on D1 of Year 1. A, the chief executive officer of X, represents that X was intended to be an S corporation effective from the date of incorporation. This intent is evidenced by the minutes of a meeting of the stockholders of X, dated D2 of Year 1, which indicate that the Board of Directors of X resolved that X should elect to be organized as an S corporation. A further represents that A relied on X’s legal counsel to prepare and file all necessary paperwork to carry out this resolution, including the Form 2553, Election by a Small Business Corporation. However, X’s legal counsel failed to prepare or file a Form 2553 for X. Therefore, no Form 2553 was filed for X.

Section 1362(b)(5) of the Code provides that if -- (A) an election under § 1362(a) is made for any taxable year after the date prescribed by § 1362(b) for making such election for such taxable year or no such election is made for any taxable year, and (B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat such an election as timely made for such taxable year.

-2-

Based solely on the facts and the representations submitted, we conclude that X has established reasonable cause for failing to make a timely election to be an S corporation for X’s Year 1 taxable year. Accordingly, provided that X makes an election to be an S corporation by filing a completed Form 2553 with the appropriate service center effective for its Year 1 taxable year, within 60 days following the date of this letter, then such election will be treated as timely made for X’s Year 1 taxable year. A copy of this letter should be attached to the Form 2553.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code, including whether X was or is a small business corporation under § 1361(b) of the Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
Pursuant to a power of attorney on file with this office, a copy of this letter is being forwarded to X’s authorized representative.

Sincerely yours,

H. GRACE KIM
Assistant to the Chief
Branch 2
Office of the Associate
Chief Counsel
(Passthroughs and
Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes